Specialty Leasing – the BIG opportunity for Shopping Centers

Short term leasing is today an integral part of the shopping center landscape across North America. Specialty Leasing is growing, becoming more sophisticated and some interesting trends are emerging in this dynamic market place. Here’s the backdrop to this phenomenon:

Landlords are under mounting pressure to introduce products and services that cannot be accessed on the internet.

Bricks and mortar retail is no longer just about product. Shoppers seeking an identifiable product can get it, usually cheaper and with less aggravation, using their computer, tablet or smart phone.

Landlords and retailers must create an exciting customer experience in their shopping centers and stores. Without the “experience” a boredom factor creeps in. Landlords and retailers who ignore this reality will likely see consumers increasingly turning their backs on their centers and physical stores.

Specialty Leasing brings about fresh ideas, innovation and ongoing change so it can play an important role in achieving the retail “experience”.

It’s no surprise then that shopping centers of all sizes and descriptions are increasingly turning to short term retail outcomes to remain relevant in a fast changing retail environment. Short term retail may not be a panacea to the online shopping threat but it is an effective strategy to entice consumers to continue visiting shopping centers. At the same time exploiting a center’s excess capacity generates very welcome ancillary income so landlords are embracing the concept with great enthusiasm.

Some of the macro changes and trends we’re seeing with Specialty Leasing are sobering.

Advances to Best Practice Retail

An undeniable trend in short term retail is that standards are improving dramatically. Shopping center landlords are doing everything possible to achieve congruity between their long and short term retailers and are targeting quality retailers to open and experiment with Pop-up units. As a result established brands are producing build-outs, merchandise displays and marketing support outcomes that are often hard to distinguish from their permanent locations. Burberry’s Pop-up store at Sydney International Airport (see photo below) is a shining example of best practice build-out and visual merchandising from a temporary space. In time, the Pop-up will be hard to differentiate from the permanent store in terms of presentation, visual merchandising and retail standards.

Revealing Rent Rates

Another emerging trend, albeit a slow moving one, is that of landlords disclosing rates for short term spaces. In North America almost all Specialty Leasing opportunities are listed with rates “to be determined” (TBD). Landlords have preferred to not disclose the price they seek for a particular space or to keep options open and this approach has worked well in an inefficient and random market place. This model still has a place in Specialty Leasing, however as the temporary leasing of retail, promotions and advertising spaces becomes normalized across the retail sector, operators will increasingly expect to know what market rates apply for spaces of interest to them. Moreover, TBD is often also a disincentive for operators to progress their interest in a particular space.

In Australia many short term “commodity” spaces such as carts, vending machines and advertising opportunities are advertised with a set weekly or monthly rent. While the rates of certain temporary spaces will remain open to negotiation the concept of showing rates, or at least indicative rates, is likely to gain momentum as Specialty Leasing transitions to a more traditional and organized marketplace. The market not the landlord ultimately determines rates.

More Clicks & Mortar Retail

Online shopping in the U.S. is growing at the rate of 15% a year and despite softening sales in shopping centers across the country, online retailers recognize that the bulk of consumer spending will continue to take place in these centers. An interesting market force adding fuel to the Pop-up fire is the concept of “clicks and mortar” retail – online businesses experimenting with and opening temporary actual shops or kiosks to create a physical presence. And they’re finding real benefits from this retail double act since:

Bricks and mortar enable a complete sensory experience and provide a sense of community. Consumers are still human beings, not robots.

Online retailers can meet and interact with customers where they live. This real experience can bring the brand closer to the hearts and minds of the shopper.

Online retail and physical shops are not mutually exclusive. They are totally compatible – a hand in glove approach in this new retail world. Amazon are presumably basing their Pop-up strategy on this reality and as Prof. Scott Galloway comments in his book, The Rise of the Pop-up “Stores are the new black in the world of e-commerce”.

Exploiting Technology to Lift Efficiencies

It’s no surprise that technology is influencing Specialty Leasing on two key fronts.

Firstly, there’s the growing use of technology with automated retail concepts and digital marketing opportunities. In what could be a first of it’s kind, a store has recently opened in Melbourne’s coastal suburb of St Kilda with nothing in it except for vending machines selling assorted consumer products. No humans serving customers, no EPOS, no creative visual merchandising, no fancy build outs – just state of the art vending machines across all the walls in the shop offering shoppers the products they want. The trend of automated retail and technology to replace traditional short term retailing techniques is sure to gain momentum.

Then there’s the use of technology to help landlords and short term retailers and promoters reach out to each other and connect far more effectively than before. Innovative platforms such as casuallease.com are disrupting inefficient practices of marketing short term opportunities to operators and the traditionally awkward processes operators face identifying, assessing and booking spaces. For a typical operator to find out what opportunities are available in a particular center, to then hunt down the right person to negotiate with can often be more than a minor challenge. Operators can now at the click of a button on their phone or tablet find, assess and book spaces of interest while landlords can now easily list all their short term options on one platform and simplify processes. It’s a solution for both parties.

The use of technology will continue to positively support Specialty Leasing through automated retail and marketing techniques, as well as with more efficient matching of suppliers of temporary locations with users of such locations.

An Increase in Experiential Retail

There’s always been an element of theatre with every successful retail enterprise. Ray Kroc, founder of McDonalds, famously remarked all those years ago “When you open the doors and you turn on the lights, you’re on stage”. Short term retail demands creativity and theatrics to create a “Wow!” and Pop-up operators are increasingly engaging customers with experiences such as sample tasting, product testing or other innovative interactivity. Creating an exciting, interactive or physical experience for the consumer is becoming the Pop-up retail norm.

Where to from here?

It’s pretty clear that shopping centers and retailers are adjusting their business models to meet fast changing consumer behavior. The millennial shopper is no longer attracted to clinical shopping centers when they can use their time more effectively and buy what they need cheaper elsewhere. Whichever way one interprets these trends, retail is undergoing rapid structural change. It’s a case of adapt or die, however Specialty Leasing is well placed to exploit the continuing shifts in consumer behavior.